If someone owes you money in Malaysia, you don't have to just sit and wait, hoping they'll pay you back. There are practical steps you can take to recover what's rightfully yours. Whether it's a friend, a business partner, or a company, understanding the debt recovery process can empower you to take action. Let's walk through this journey together, from sending a friendly reminder to potentially declaring bankruptcy or winding up a company.

Step 1: The Friendly Reminder – A Letter of Demand

Before escalating matters legally, it's wise to send a letter of demand to the debtor, preferably through your solicitors. This letter should:

  • Clearly state the amount owed.

  • Outline the agreed-upon payment terms.

  • Provide a deadline for payment (usually 14 days).

  • Warn of potential legal action if the debt remains unpaid.

Often, this formal notice is enough to prompt the debtor to settle the debt.

Step 2: Getting Serious - Initiating a Civil Suit

If the friendly nudge doesn’t work, it's time to get serious. Filing a civil suit depends on the amount owed:

  1. Small Claims Court: For debts up to RM5,000. Think of this as a quick and less formal way to get your money back. However, it’s important to note that parties must represent themselves in this court, as the process is intended to remain simple and accessible to laypeople.

  2. Magistrates’ Court: For debts exceeding RM5,000 to RM100,000.

  3. Sessions Court: For debts exceeding RM100,000 to RM1,000,000.

  4. High Court: For debts exceeding RM1,000,000.

You’ll need to file a statement of claim that outlines why the debtor owes you money. Then, the court will summon the debtor to appear in court, and the court proceedings will commence.

Step 3: The Courtroom Drama - Court Proceedings

In court, both you and the debtor will present your sides of the story. If the court decides in your favour, you'll get a judgment debt, which is a legal recognition that the debtor owes you money. But what if the debtor still doesn't pay?

Out-of-Court Settlement

Even after legal proceedings have commenced, it is still possible to reach an out-of-court settlement. Here’s how it works:

  • Negotiation: Both parties can negotiate a settlement at any point during the legal process. This can be a faster and less expensive way to resolve the dispute.

  • Mediation: The court may suggest mediation, where an impartial third party helps both parties reach an agreement.

  • Settlement Agreement: If a settlement is reached, both parties can sign a settlement agreement, which outlines the terms of the settlement. This agreement can be made a court order, ensuring enforceability.

Out-of-court settlements can save time, reduce legal costs, and provide a more amicable resolution for both parties.

Step 4: Turning the Heat Up - Enforcement of Judgment

To enforce the judgment, you have a few options:

  • Writ of Seizure and Sale: This allows you to seize and sell the debtor’s assets.

  • Garnishee Proceedings: You can get a court order directing a third party, like the debtor’s bank, to pay you from the debtor’s account.

  • Judgment Debtor Summons: This requires the debtor to explain in court why they haven’t paid. If they can pay but refuse to, they could face imprisonment for contempt of court.

Step 5: The Big Guns - Bankruptcy Proceedings or Winding Up

Bankruptcy

When the debt is or exceeds RM100,000.00, you can consider filing for bankruptcy against an individual debtor:

  1. Bankruptcy Notice: Serve this notice, giving the debtor seven (7) days to settle the debt, failing which, the debtor is deemed to have committed an act of bankruptcy.

  2. Creditor’s Petition: After which, the creditor will proceed to file a creditor’s petition. 

  3. Adjudication: The court will decide whether to declare the debtor bankrupt.

Bankruptcy means the debtor’s assets are taken over by the Director General of Insolvency to repay creditors.

Winding Up

For company debts over RM50,000, winding up is an option:

  1. Statutory Demand: Serve this demand, giving the company 21 days to pay.

  2. Winding-Up Petition: If unpaid, file a petition in the High Court.

  3. Liquidation: If the court agrees, a liquidator will sell the company’s assets and distribute the proceeds to creditors.

When to Call for Assistance

Dealing with debt recovery can feel like navigating a maze. The legal steps are full of twists and turns, and missing a single detail can set you back. That’s why having solicitors to assist you in this can make all the difference.

If you’re struggling with debt recovery or simply want to ensure you’re on the right track, reach out to our office via an email at general@yikuan.com.my or contact us directly at 03 – 8084 3832. We have ample experience in debt recovery and can help you go through each and every step with confidence. Don’t let unpaid debts weigh you down – contact us today and take the first step towards getting what you’re owed.